Weak shilling lifts Williamson, Kapchorua tea profits

Williamson Tea and its associate Kapchorua Tea reported strong jumps in earnings for the six months to September, benefiting from the weak shilling.

Williamson’s net profit in the period increased 126.2 per cent to S80.7 million as finance income –reflecting foreign exchange gains— went up nearly two-and-a-half times to Sh120.3 million.

Kapchorua’s net profit more than doubled to Sh100.4 million, again boosted by finance income element which rose 5.4 times to Sh48.9 million.

The shilling has depreciated about 12 per cent since the beginning of the year to exchange at 102 units against the dollar, benefitting exporters including the tea firms that are paid in foreign currencies.

The two companies also benefitted from cost-cutting measures and higher revaluation of their tea bushes, also known as biological assets. The gain in the value of Williamson’s tea plantations rose 127 per cent to Sh159.2 million while that of Kapchorua increased 87.1 per cent to Sh50.6 million.

“Turnover and profit from operations went up due to higher sales volumes, improved net realisations boosted by a weakening shilling against trading currencies and implementation of rigorous cost control measures,” the firms, which share directors, said in a statement.

Kapchorua’s turnover, however, remained flat at Sh525.7 million with the firm’s management saying that “crop levels were slow to come back after a very dry start to the year”. Its parent company on the other hand registered a 22 per cent growth in sales to Sh1.53 billion. The half-year performance by the two tea companies represents a rebound from the loss they both registered in the full year to March.

Williamson reported a full-year net loss of Sh227.6 million and Kapchorua had a Sh22.8 million loss, which they blamed on low prices caused by a supply glut in the globaland Kenya market.

The glut also affected earnings for smallholder farmers who depend on the crop which is one of Kenya’s main sources of foreign exchange.

The management of Kapchorua and Williamson are now warning that the ongoing El-Nino rains could precipitate a similar oversupply and a resultant price dip could again eat into their full-year earnings.

“The arrival of the short rains, with or without El Nino, will result in favourable crops over the coming months. There is bound to be a decline in current price levels which could negatively impact the second half of the financial period,” a statement from the two firms said.

Revaluation of Kapchorua’s tea bushes saw it close the period with Sh2.11 billion total assets from last year’s Sh1.98 billion while its parent company’s assets were up three per cent to Sh8.8 billion.